Three-and-a-half years after imposing a 4% entry tax on sugar imported from outside the state with an aim to safeguard the interest of local industry and generate more revenue for the state, Punjab government finally abolished the tax following directions from the Punjab and Haryana high court early this month.

While this court decision has brought relief of Rs 1.25 on every kilogram purchase of sugar to consumers, the excise and taxation department in Punjab stands to lose about Rs 46 crore per annum.

Punjab started collecting entry tax on sugar in November 2007 after the new SAD (B)-BJP government came to power in 2007, by amending the Punjab Tax on Entry of Goods into Local Area Act. While earlier there was no tax on sugar in the open market, the entry tax faced stiff opposition from the trader lobby.

Besides, sugar traders in Punjab, the sugar lobby in Uttar Pradesh also opposed the tax, saying the tax was imposed to discourage sugar import in Punjab from other parts of the country to protect mills in the state. With five private and four cooperative sector sugar mills functional in Punjab, the state traders import over 85% of the sugar stock from UP to meet consumer demands.

While imposition of entry tax on imported sugar increased competition between sugar mills in UP and Punjab, it also led to consumers being forced to pay higher price. So some traders, supported by some sugar mills in UP, filed a writ petition in Punjab and Haryana high court, calling the imposition of entry tax as discriminatory.

The entry tax was imposed on many other goods as well and the motive was to large scale evasion of VAT (Value Added Tax), said former finance minister Manpreet Singh Badal.

"The new tax on sugar was imposed to restrict the entry of sugar from other states so that sugar mills in Punjab could sell their produce at higher rates, said Krishan Kumar," a sugar broker from Muffarnagar in UP.

The abolition of the entry tax on sugar will cause per annum loss of Rs 45 crore to Rs 50 crore to the excise and taxation department, said A Venu Prasad, commissioner, excise and taxation department, Punjab. ML Kapoor, chairman, Small Traders Board in Punjab, said the high court ordered abolition of entry tax as there was no VAT on sugar and the entry tax on sugar ca not be adjusted against VAT.

Not only traders, the entry tax on sugar in Punjab even invited special attention of Union agriculture and food ministry last year when the sugar prices were skyrocketing.

Asking the states to waive off all taxes on sugar and foodgrains, Union minister Sharad Pawar had addressed the chief ministers' conference on price rise convened by the Prime Minister in February last year.